Durable-goods orders decline 1% in January

Most sectors aside from defense post drop, but business investment rises

WASHINGTON (MarketWatch) — Orders for U.S. durable goods fell 1% in January as demand waned for most big-ticket items except military hardware, but companies ramped up plans for business investment.

The mixed durable-goods report had little effect on U.S. stock markets as investors focused on Senate testimony of new Federal Reserve Chairwoman Janet Yellen. She reiterated that she expects the economy to continue to improve in 2014, giving the Fed the leeway to wind down its bond-buying stimulus program.

Orders for long-lasting goods have fallen in three of the past four months, but up-and-down airline bookings are largely responsible. Aircraft orders sank 20.2% in January.

Boeing received just 38 orders for new planes in January, down from a record 319 in the final month of 2013. The company usually takes in a bunch of orders at the end of one year and books a lot fewer at the start of the next.

Also, auto orders dropped 2.2%.

If the transportation sector is stripped out, orders climbed 1.1% and they have risen in four of the past five months. Looking ahead, many economists believe orders will accelerate, especially after harsh winter weather passes and the spring arrives.

The January report might offer some evidence. Orders for core capital goods—a stand-in for business investment — jumped 1.7% after falling by a similar amount in December. Economists give core orders great weight because it is a signal of the future intentions of business. Read: Why economists take rosier view of soft durables report.

“The headline data in this latest report won't reassure many, but this report did contain some good news,” said Gregory Daco, lead U.S. economist at Oxford Economics.

Yet government figures on orders can be quite volatile from month and month and it may take time to determine if an upward trend is developing. Business investment softened in 2012 and 2103 after big gains in the first two years once the U.S. exited recession.

What’s more, the January report was filled with signs of weakness and the drop in orders for December was revised even lower.

Although military orders snapped back in a big way after a sharp decline in December, bookings fell in virtually every other major category. Orders fell 6.7% for computers, 2.1% for electrical equipment and appliances, 1.8% for primary metals and 0.4% for machinery.

In addition, shipments of core capital goods, a category used to calculate quarterly growth, dropped 0.8% in January. That adds to mounting evidence that first-quarter gross domestic product is likely to be weak.

In December, the decline in orders was reduced to 5.3% from a previously reported 4.2% drop.

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